Guidance on the extent of the Court's powers to order preliminary discovery of insurance documents

In the recent decision of Wadren Pty Ltd v ProBuild Constructions (Aust) Pty Ltd & Ors [2023] VSC 348, the Supreme Court of Victoria provided some useful guidance on the extent of the Court’s powers to order preliminary discovery of insurance documents and information in circumstances where an insured is in liquidation.

Whilst it is clear that the Court will order the discovery of insurance policies to enable prospective plaintiffs to assess what insurance cover is available to the prospective defendant, it is not a foregone conclusion that it will order discovery or information relevant to the extent of cover available more generally or coverage correspondence between insureds and insurers.

In this article, we provide a summary of the decision and consider the key findings.

Key findings

• Preliminary discovery under rr 32.03 and 32.05 Supreme Court (General Civil Procedure) Rules 2015 Vic (Rules) does not extend to information about the likely recovery of a claim.
• The Supreme Court of Victoria rejected the plaintiffs’ submission that ‘rule 32.05 enables an applicant who believes that he or she may have a cause of action to obtain sufficient information to know whether the risk of litigation is worthwhile’.

Summary of decision

The facts

On or about 21 March 2014, Wadren Pty Ltd (Wadren) and Probuild Constructions (Aust) Pty Ltd (Probuild), the First Defendant in these proceedings, entered into a contract, where Probuild was to undertake construction works for the Pacific Werribee Shopping Centre (Centre). Wadren and QIC Werribee Pty Ltd (QIC) are co-owners of the Centre.

The works were completed by Probuild in 2017. Wadren subsequently alleged that there were extensive structural and non-structural defects at the Centre, allegedly caused by Probuild. Wadren claimed the damage caused by the defects would amount to between $331,800,000 and $356,800,000 (Claim).

On 23 February 2022, Probuild went into voluntary administration. On 21 July 2022, a deed of company arrangement was executed.

Accordingly, before commencing proceedings against Probuild, Warden and QIC needed to ascertain:

• whether proceedings could be commenced;
• who should be named as defendants; and
• what relief will be available (which depended on whether any relevant policies responded to the Claim).

Application for preliminary discovery

Probuild had the benefit of professional indemnity policies with a combined limit of liability of $50,000,000 for any one occurrence and in the aggregate for all claims made during the period of insurance.

In summary, Warden and QIC sought preliminary discovery of documents to identify:

• AIG’s co-insurers and Probuild’s excess layer insurers;
• the nature and content of any insurance policy;
• whether the policy provides cover to Probuild, including details of the extent of any claims that have been made and paid out on the policies. Additionally, a copy of Probuild’s notification of the claim to its insurers;
• whether any other claims have been made upon the applicable professional indemnity insurance policy/ies, including details of any settlements of such claims.

The judgment

The Court determined that preliminary discovery does not extend to information about the likely recovery of a claim, and rejected the plaintiffs’ argument that the relevant rules allow prospective plaintiffs to test whether litigation will be “worthwhile”.

The Court agreed with the plaintiffs that insurers are required to disclose documents evidencing confirmation or denial of indemnity, as they are a class of documents sought to go to what defences may be available to insurers, and relate to the question of whether the plaintiffs have the right to obtain relief. However, the Court disagreed that plaintiffs are entitled to disclosure of information in relation to whether limits of indemnity, available under the primary professional indemnity policies, have been eroded.

The Court stated there was a distinction to be drawn between:

• what information is sufficient to enable plaintiffs to decide whether to commence a proceeding; and
• documents relating to the question of whether the plaintiffs have the right to obtain relief.

The Court concluded that an applicant is entitled to documents evidencing:

• what defences are available to the respondent;
• the possible strength of those defences;
• the extent of the respondent’s breach; and
• the likely quantum of any damages award.

The Court found that documents "should not be produced merely for the purpose of determining the extent of claims that have been made on any particular policy or the amount of funds that may be available if the plaintiffs are ultimately successful in this proceeding" (at [129]).

The Supreme Court of Victoria has taken a narrower approach to the basis for preliminary discovery than that adopted in the Federal Court. In another matter where the insured was in liquidation, Thawey J was of the view that grounds for disclosure included obtaining information about the financial circumstances of the insured defendant in order to assess whether to proceed against the defendant (Watson v Dixon Advisory and Superannuation Services Ltd (ACN 103 071 665) [2022] FCA 1273). In that case, Thawey J ordered partial discovery of the policy so that the applicant could have sufficient information to inform it as to whether it:

• was commercially viable to prosecute the claim; and
• should seek leave to proceed against the respondent.

Thawey J concluded this included providing details of policy wording as to liability, details of the exclusions, relevant sub-limits and limits, to include overall limits of the policies in question. Thawey J rejected insurers' argument that to provide this information would provide a commercial advantage to the class action in negotiations, allowing the applicant to tailor its claims to avoid engaging the exclusions.

Comment

The decision provides useful guidance on the extent of the Court’s powers to order preliminary discovery of insurance documents and information. Although a Court will order the discovery of insurance policies to enable prospective plaintiffs to assess what insurance cover is available to the prospective defendant, certainly in Victoria it is unlikely to order discovery or information relevant to the extent of cover available more generally (to include erosion of limits) or coverage correspondence between insureds and insurers. However, the Federal Court jurisdiction may differ , with recent decisions ordering discovery of policy information to allow parties to assess the commercial viability of pursuing a claim. Such orders are of course at the Federal Court's (broad) discretion.

Certain commercially sensitive insurance documents and information, such as whether the limits of indemnity available under the policies have been eroded by other claims, are unlikely to be ordered to be discovered to prospective plaintiffs.

Despite this judgment, we expect that prospective plaintiffs will continue to seek discovery of insurance documents and information, testing the present position, in order to obtain information to determine the extent of their possible recovery. This is likely to occur in cases where the prospective defendant is in liquidation or in class actions, most likely through preliminary discovery applications (though of course there are other mechanisms for discovery available).

Further reading

Wadren Pty Ltd v ProBuild Constructions (Aust) Pty Ltd & Ors [2023] VSC 348

Watson v Dixon Advisory and Superannuation Services Ltd (ACN 103 071 665) [2022] FCA 1273

 

Read other items in Australian Insurance Brief – November 2023